The relationship between lipid phase separation and fusion of small unilamellar phosphatidylserine-containing vesicles was investigated. The kinetics of phase separation were monitored by following the increase of self-quenching of the fluorescent phospholipid analogue N-(7-nitro-2,1,3-benzoxadiazol-4-yl)phosphatidylethanolamine, which occurs when the local concentration of the probe increases upon Ca2+-induced phase separation in phosphatidylserine (PS) bilayers [Hoekstra, D. (1982) Biochemistry 21, 1055-1061]. Fusion was determined by using the resonance energy transfer fusion assay [Struck, D. K., Hoekstra, D., & Pagano, R. E. (1981) Biochemistry 20, 4093-4099], which monitors the mixing of fluorescent lipid donor and acceptor molecules, resulting in an increase in energy transfer efficiency. The results show that in the presence of Ca2+, fusion proceeds much more rapidly (t 1/2 less than 5 s) than the process of phase separation (T 1/2 congruent to 1 min). Mg2+ also induced fusion, albeit at higher concentrations than Ca2+. Mg2+-induced phase separation were not detected, however. Subthreshold concentrations of Ca2+ (0.5 mM) or Mg2+ (2 mM) induced extensive fusion of PS-containing vesicles in poly(ethylene glycol) containing media. This effect did not appear to be a poly(ethylene glycol)-facilitated enhancement of cation binding to the bilayer, and consequently Ca2+-induced phase separation was not observed. The results suggest that macroscopic phase separation may facilitate but does not induced the fusion process and is therefore, not directly involved in the actual fusion mechanism. The fusion experiments performed in the presence of poly(ethylene glycol) suggest that the degree of bilayer dehydration and the creation of "point defects" in the bilayer without rigorous structural rearrangements in the membrane are dominant factors in the initial fusion events.